RBI likely to ease 70% provisioning rule

In what may come as a major relief to banks, the Reserve Bank of India (RBI) today said it was working on the modalities to ease the provision coverage ratio (PCR) norms in order to release a huge amount of capital into the system.

In October 2009, the central bank had prescribed a PCR of 70 per cent for banks and had given them 12 months time to comply with it.

While most banks complied with the regulatory prescription, some big banks, like State Bank of India and ICICI Bank, requested for an extension, which was granted by RBI. UCO Bank and Bank of Maharshtra were llowed an extension recently.

“It is (70 per cent PCR) perhaps causing some kind of discomfort. It is the build-up phase, but is not meant to be kept at that level. Now, we are working on the release phase,” RBI Executive Director Anand Sinha said today.

Sinha said RBI would come out with a comprehensive policy that might allow banks to use the provisions made under certain conditions.

“The basic idea is to build up capital buffers in good times, which can be drawn down in bad times, so that banks continue to lend and support the economy,” Sinha said in his address in the annual banking seminar BANCON.

He said RBI had been using countercyclical capital and provision requirement in some sectors like the capital market and real estate.